Investment Rating - The investment rating for Yum China (09987.HK) is "Buy" [5] Core Views - The company reported a revenue of $2.787 billion in Q2 2025, a year-on-year increase of 4%, and a net profit of $215 million, also up by 1%. The core operating profit reached $303 million, reflecting a 14% increase year-on-year [1] - The company has successfully expanded its store network, achieving a total of 16,978 stores by Q2 2025, with KFC and Pizza Hut stores numbering 12,238 and 3,864 respectively. The net addition of 336 stores in Q2 2025 included 295 KFC stores, of which 119 were franchised [1][2] - Same-store sales showed positive growth, with overall same-store sales increasing by 1%, KFC same-store sales up by 1%, and Pizza Hut same-store sales rising by 2% [2] Summary by Sections Financial Performance - In Q2 2025, the restaurant profit margin was 16.1%, an increase of 0.6 percentage points year-on-year. KFC's profit margin was 16.9%, up by 0.7 percentage points, while Pizza Hut's profit margin was 13.3%, up by 0.1 percentage points [2] - The operating profit margin reached a new high of 10.9%, reflecting a year-on-year increase of 1 percentage point, driven by improved restaurant profit margins and reduced management expenses [2] Sales and Growth - The company experienced a significant increase in delivery sales, which rose by 22% year-on-year, accounting for 45% of restaurant revenue. KFC and Pizza Hut's delivery sales increased by 25% and 15% respectively [3] - Digital orders contributed $2.4 billion, representing 94% of restaurant revenue, with a year-on-year increase of 4 percentage points [3] Store Expansion and Innovation - The company has innovated its store formats, with over 1,300 KFC Coffee locations opened, and the annual opening target for KFC Coffee increased from 1,500 to 1,700. Pizza Hut's new WOW store format has expanded to over 200 locations since its launch in May 2024 [4] - Capital expenditure targets have been adjusted downwards, with the 2025 target reduced from $700-800 million to $600-700 million due to lower investment costs per store [4] Shareholder Returns - In H1 2025, the company returned $536 million to shareholders, including $356 million in stock buybacks and $180 million in cash dividends. The total expected shareholder return for 2025 is at least $1.2 billion [4]

Core Viewpoint - The company reported a modest growth in revenue and net profit for Q2 2025, driven by improved operational efficiency and a positive trend in same-store sales after a challenging period [1][2][3]. Financial Performance - In Q2 2025, the company achieved revenue of $2.787 billion, a year-on-year increase of 4% [1] - Net profit for the same period was $215 million, reflecting a 1% year-on-year growth [1] - The operating profit margin and net profit margin were 10.9% and 7.7%, showing a year-on-year increase of 1.0 percentage points and a slight decline of 0.2 percentage points, respectively [1] Same-Store Sales and Transaction Volume - The company recorded a 1% positive growth in same-store sales for Q2 2025, with same-store transaction volume increasing by 2% [2] - The average transaction value per store decreased by 1%, primarily due to an increase in small orders driven by delivery subsidies, particularly in the beverage category [2] - This marks the first positive same-store sales growth since 2024, following a period of negative growth [2] Operational Efficiency - The company experienced a dual increase in operating profit margin and restaurant profit margin, with the latter reaching 16.1%, up by 0.6 percentage points year-on-year [2] - KFC's restaurant profit margin was 16.9%, up by 0.7 percentage points, benefiting from improved supply chain efficiency [2] - Pizza Hut's restaurant profit margin was 13.3%, with a 0.1 percentage point increase, marking five consecutive quarters of year-on-year profit margin improvement [2] Store Expansion and Capital Expenditure - The company maintains its guidance for 1,600 to 1,800 net new stores for the year, while lowering its capital expenditure guidance [3] - The proportion of franchise stores among new openings for KFC and Pizza Hut is expected to reach 40%-50% and 20%-30%, respectively [3] - Single-store investment costs have decreased, with KFC's single-store investment down to $1.4 million and Pizza Hut's to $1.1 million, which helps free up cash flow and expand franchise opportunities [3] Shareholder Returns - The company plans to return at least $1.2 billion to shareholders in 2025, with $536 million already returned in the first half of the year [3] - This includes $356 million in share buybacks and $180 million in cash dividends [3] - The company has $936 million remaining in buyback authorization as of June 30, 2025, and aims for a total of $3 billion in buybacks and dividends over the next two years [3] Profit Forecast - The company forecasts net profits of $934 million, $1.013 billion, and $1.138 billion for 2025-2027, with year-on-year growth rates of 2.5%, 8.5%, and 12.3%, respectively [3] - The current stock price corresponds to price-to-earnings ratios of 19, 16, and 14 for the respective years [3]

Group 1: Company Performance - KFC and Pizza Hut's operator, Yum China, reported a 4% year-on-year revenue increase to $2.787 billion in Q2, with net profit rising 1.4% to $215 million [1] - KFC's revenue grew by 4.1% to $2.096 billion, while operating profit increased by 10.6% to $292 million in Q2 [1] - Pizza Hut's revenue rose by 2.6% to $554 million, with operating profit up 15% to $46 million [1] Group 2: Sales Channels and Trends - Delivery sales accounted for approximately 45% of Yum China's restaurant revenue in Q2, a 7% increase year-on-year, with KFC's delivery sales being the largest source of revenue [1] - Pizza Hut's delivery sales represented 43% of its revenue, up 5% year-on-year, while dine-in remained its largest revenue source at 48% [1] - Same-store sales for KFC increased by 1% year-on-year, with transaction volume achieving positive growth for ten consecutive quarters [2] Group 3: Cost and Profitability - The increase in delivery sales has led to a rise in labor costs, with labor costs increasing by 0.9% year-on-year, while food and rent costs decreased by 0.5% and 1.1% respectively [2] - Yum China's CFO emphasized the importance of maintaining a disciplined growth approach in delivery services while controlling profitability [3][4] Group 4: Market Reaction - On August 6, Yum China's stock closed at HKD 348.6 per share, down 5.99% [5] - The Shanghai Consumer 80 Index closed at 4914.72 points, with a slight decline of 0.02% [6]

Core Insights - Yum China has reported strong financial performance for Q2 2025, with total revenue reaching $2.787 billion, a year-on-year increase of 4% [2] - The company aims to accelerate store expansion in the second half of the year, targeting a net increase of 1,600 to 1,800 stores for the year [2][3] Financial Performance - Q2 operating profit grew by 14% to $304 million, with an operating margin of 10.9%, both marking historical highs for the period [2] - For the first half of 2025, revenue was $5.768 billion, up 2.32% year-on-year, and net profit attributable to shareholders was $507 million, a 1.6% increase [2] Store Expansion Strategy - As of June 30, 2025, Yum China operated 16,978 restaurants, a net increase of 583 from the end of the previous year [2] - KFC added 590 new stores, while Pizza Hut saw a net increase of 140 stores [2] - The company plans to focus on franchise models for expansion, particularly in lower-tier cities and high-traffic locations like train stations [3] Delivery and Market Competition - Delivery sales grew by 22% in Q2, accounting for approximately 45% of restaurant revenue, up from 38% in the same period last year [4][5] - KFC's delivery sales increased by 25%, while Pizza Hut's grew by 15% [5] - Management emphasized maintaining price integrity and not sacrificing profit margins for market share during competitive delivery promotions [5] Pricing Strategy and Menu Changes - Pizza Hut has introduced a new menu with significant price reductions, with discounts ranging from 20% to 51%, marking a strategic move to attract customers [6][8] - The average transaction value at Pizza Hut decreased by 13% due to the price cuts, despite a 2% increase in same-store sales [8] - The new WOW store format, focusing on smaller portions and lower prices, has seen over 200 locations opened, with plans for further expansion [8]

Investment Rating - The report maintains a "Buy" rating for the company [2][9]. Core Insights - In Q1 2025, the company reported total revenue of $3 billion, a year-on-year increase of 1% (2% excluding foreign currency effects), and adjusted net profit of $292 million, up 2% (3% excluding foreign currency effects) [2][6]. - The company is expected to add 1,600 to 1,800 new stores in 2025, maintaining a high opening pace, which is anticipated to drive continued revenue growth [2][6]. - The projected net profit for the company from 2025 to 2027 is $989 million, $1.06 billion, and $1.127 billion, respectively, corresponding to a price-to-earnings ratio of 17, 16, and 15 times at the current stock price [2][6]. Summary by Sections Financial Performance - In Q1 2025, the company achieved a total revenue of $3 billion, with a 1% year-on-year growth, and an adjusted net profit of $292 million, reflecting a 2% increase [2][6]. - The company’s same-store sales remained flat, with a 4% increase in transaction volume for KFC and a 17% increase for Pizza Hut, while average transaction prices decreased by 4% and 14%, respectively [2][6]. Store Expansion - The company added 247 new stores in Q1 2025, with 25% being franchise stores. KFC accounted for 295 new stores, with 41% being franchises, while Pizza Hut added 45 stores, with 33% being franchises [2][6]. - As of the end of Q1, the total number of stores reached 16,642, including 11,943 KFC stores and 3,769 Pizza Hut stores [2][6]. Profitability - The cost structure improved, with a decrease in the proportion of raw material costs, leading to an increase in operating profit margins. KFC's restaurant profit margin rose by 0.5 percentage points to 19.8%, while Pizza Hut's increased by 1.9 percentage points to 14.4% [2][6]. - Overall, the company's core operating profit margin increased by 0.8 percentage points to 13.4% [2][6].